Objective To compare clinical outcomes between patients for whom their participation in inpatient rehabilitation was and was not impacted by dementia through matching patients reporting dementia (dementia group) with those not reporting dementia (non‐dementia group). Methods Prospectively collected data held by the Australasian Rehabilitation Outcome Centre (AROC) were analyzed for patients aged 65 years or older receiving inpatient rehabilitation in public hospitals in Australia following a hip fracture and discharged between July 1, 2014, and June 30, 2019. Patients reported as having dementia impacting their rehabilitation program were matched to patients not reporting dementia based on age, admission motor Functional Independence Measure (FIM) score, and accommodation prior to rehabilitation. The matched cohorts were compared in relation to clinical outcomes (motor and cognitive FIM improvement, FIM efficiency, length of stay, and discharge destination) following participation in hospital‐based rehabilitation using univariate analysis. Results Patients with dementia had significantly lower cognitive FIM scores on commencing rehabilitation (17.6 and 26.9, respectively, P < 0.001) and their median length of stay was 2 days shorter than those without dementia (21 and 23 days, respectively, P < 0.001). Relative change in FIM score and FIM efficiency (per week) were lower in the dementia group [relative FIM score change of dementia vs non‐dementia, respectively, 26.2% vs. 44.0% (P < 0.001) and FIM efficiency, 6.5 vs. 8.9 (P < 0.001)]. Discharge destination between the two groups was statistically different, with 35.7% of patients with dementia being discharged to residential aged care facilities (RACFs) compared to 21.7% of those without dementia (P < 0.001). More patients with dementia had carers in their private residence in the post‐rehabilitation phase, 82.2% vs. 57.6% (P < 0.001). Conclusion Patients with dementia who sustain a fractured hip benefit from inpatient rehabilitation, although their clinical outcomes are not as good as those without dementia. FIM change and FIM efficiency were lower in the dementia group. Length of stay in the hospital for patients with dementia was shorter due to earlier recognition for the need for placement in either an RACF or at home with carer support. The need for placement in an RACF or carer support in a private residence was significantly greater in the dementia group.